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San Diego Institute for Policy Research: Positive on Enterprise Zones

Vince Vasquez, Senior Policy Analyst with the San Diego Institute for Policy Research has published a highly favorable Op-Ed about the San Diego Enterprise Zone in particular, and the Enterprise Zone program as a whole. The article appears on the San Diego Institute’s website here, and was also printed in the August 16, 2007 edition of The San Diego Daily Transcript. With the author’s permission, here is the Op-Ed in its entirety:

As the downturn in the housing market has begun to ripple through the economy, more and more observers, including SDI’s own Kelly Cunningham, are starting to talk about the risk of recession. One exciting development that has the potential to mitigate the impacts of this downturn is the effort by local leaders to expand a successful pro-growth program known as enterprise zones (EZs).

Enterprise zones are special packages of tax breaks and other incentives designed to increase jobs and investment opportunities within a limited, economically-distressed area. Invented in Great Britain in the 1970s, and popularized in the United States under the leadership of President Ronald Reagan, EZs have become a major component of urban renewal strategies across the nation. More than 40 states have established EZ programs tailored to their own unique needs and goals, including the Golden State.

California’s EZ program encompasses 42 zones and offers four key benefits that increase job opportunities and encouraging private-sector market forces to improve local economies. They are: 1) credits for sales tax paid on certain commercial equipment purchases; 2) a maximum five-year tax credit for hiring disadvantaged employees; 3) lender interest deductions; and 4) an extended carryover of corporate net operating losses. Qualifying employees can also receive a tax credit for working within an EZ, and local EZ administrators often cut red tape and provide additional assistance to EZ participants. These incentives have helped retain businesses in some of the state’s most down-trodden areas through two recessions, spurring greater capital expenditures, and improving the economic prospects of more than 190,000 Californians in just the last five years.

San Diego has had two Enterprise Zones, the “Metro Zone” that encompasses Barrio Logan, the Imperial Avenue Corridor and several other commercial areas in Southeastern San Diego and the “South Bay Zone” which includes Otay Mesa and some areas in Western Chula Vista. These two zones have been an economic development success story. Between 1990-2000, the Metro EZ and South Bay EZ saw significant drops in their poverty rates (52% to 39%, and 22% to 16%, respectively), compared to the City’s overall rate, which increased between that time (13% to 15%). Unemployment also dropped in both zones, as thousands of jobs were created that targeted residents within these low income neighborhoods as well as those who faced barriers to employment, such as ex-offenders and disabled veterans. In all, more than $1.5 billion worth of corporate investment and 20,000 jobs have been created within San Diego’s Enterprise Zones.

Building on that success, San Diego civic leaders recently applied for approval of a new “Regional Enterprise Zone” (REZ) that extends beyond the geographic limits of the Metro and South Bay EZs. Stretching across 36,000 acres, the REZ includes more of the communities in the City that need additional investments and job opportunities: the inner-city core, border neighborhoods and major portions of National City and Chula Vista. This expansion reflects the ground-level reality of two starkly different Cities of San Diego. According to the most recent figures from the U.S. Census, 63% of all unemployed City residents and 72% of all San Diegans living in poverty reside south of Interstate 8. Working households reporting income from government sources (Supplemental Security Income or other public assistance) are nearly three times more likely to be living in the southern half of the City than North of I-8. The REZ designation will encourage new capital investments and complement private efforts, such as the dynamic community renewal initiatives undertaken by Price Charities in City Heights and the Jacobs Family Foundation in the Diamond area.

The REZ application is still waiting for the final green light from state officials. SDI urges our state officials to approve the zone now. While pending, EZ administrators can sign up qualifying businesses for zone benefits under a current provisional status.

Like many socio-economic programs, EZs are only useful if they have a high participation rate from those who qualify. They also need to be publicized and promoted. Capital investors need to know that the tax benefits can provide them with the opportunity to achieve sufficient returns on investment. That is why it is critical that the Mayor’s Office and the San Diego City Council should use the bully pulpit to raise awareness of REZ program benefits, and ensure that local EZ coordinators have all the support and resources they need to reach their program goals.

Enterprise zones aren’t a panacea to what ails urban America, but they are an important partner in turning around blighted communities. If local leaders want to prepare all residents for the challenges of tomorrow’s economy, they should consider doing more to bridge the two San Diegos with one common destiny today.

1 Comment to San Diego Institute for Policy Research: Positive on Enterprise Zones

  1. pete cassini's Gravatar pete cassini
    September 18, 2007 at 2:34 pm | Permalink

    Small business in san diego county need help to expand and add more jobs not just the city i need help to expand but because my location is unincorporated area no one can seem to help San Diego needs to wake up and help locals not just go after the big fish.

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